A king without an heir: In a meeting at Vornado HQ in late 2014, Steve Roth was being Steve Roth: Holding court, making wisecracks, talking over the rest of his 220 Central Park South team. Then, his secretary entered the room and handed him a note. Roth read it, sprung up, and left the room without a word. A few minutes later, he walked back in, grabbed a seat, and took over the meeting again without an explanation. The note, crumpled up, was left on the table, where it was later retrieved by a project insider. It said, simply: “Mrs. Roth on the phone.”
Roth is among the scariest men in New York real estate. “He’s the guy that Groucho, Harpo and Chico would take care of,” said one insider who’s observed Roth over his career, referring to the Vaudevillian heel the Marx Brothers would target in their slapsticks. Another likened him to a “1930s British pub fighter, the type that holds both fists up.” But for every anecdote of Roth terrorizing rivals and underlings, I heard stories of his kindness, of his extreme loyalty, and of his affection for those close to him. That mix, coupled with his universally acclaimed real estate acumen, makes him one of the most intriguing characters in the business. But how much longer can Roth, now in his mid-70s, rule the roost at Vornado?
The spin room: How do I bamboozle thee, condo buyer? Let me count the ways. Treat contracts out as contracts signed. Embellish sales figures. Declare units were sold when they’re still on the market. Claim buyers paid sticker price when, in fact, hefty discounts were given.
When enforcement in an industry is so lax, and the upsides of a little trickery are so high, mischief is bound to happen. As TRD’s Konrad Putzier revealed in a new investigation, New York’s condo market is plagued by such misleading tactics, which hurt not only buyers but also the market at large. Spin adds an artificial urgency that may push buyers to purchase apartments in haste, and developers and brokers seeing such practices at rival projects may be pressured to follow suit.
Here’s the biggest concern: As the market slows down, this behavior is bound to get more prevalent. Real estate attorney Pierre Debbas predicted that a downturn could lead to a wave of litigation from buyers, who may seek an escape route for apartments whose value is falling. As these suits shed light on inflated sales numbers, they could in turn buyers off from the condo market as a whole, and push the market even further into a funk.
“When the market is good, people aren’t as concerned,” Debbas said. “It’s when the market goes south that people are saying: ‘Now I’m really worried.’”
New York State Attorney General Eric Schneiderman’s office, which is meant to police condo sales, refused multiple requests to comment for the story. The AG’s office has occasionally gone after a few bad actors for issues such as construction defects: In August, for example, Schneiderman announced a settlement with Shaya Boymelgreen, declaring an end to what he termed Boymelgreen’s “perpetual fraud and abuse in New York City real estate securities.” But blatant abuses of the law are rare, and generally one-offs: Number-fudging and other subtle tactics are more deep-rooted problems, and the AG should take them seriously.
One simple change could make a big difference: The AG could require developers to list how many signed contracts they have, how many contracts are out, and the average in-contract price per foot. Developers could be required to update this information on a monthly or quarterly basis.
New York cannot rely on the private sector to address issues of transparency — consider the case of Citi Habitats’ short-lived partnership with RentLogic. Condos are securities, and regulating them should be taken as seriously as regulating stocks and bonds.
Broker, banker, friend: In a condo market starved for financing, finding a developer sources of capital is a promising path to finding oneself with a new development assignment.
“I sometimes go as far as helping clients connect with people who can help them raise LP capital and have done that successfully,” Halstead Property’s Robin Schneiderman told TRD’s Kathy Clarke. “If you can bring in a capital partner, especially when the market has tightened as far as equity or debt-side construction loans, that goes a long way.” This makes sense given how banks have been leaving a void in the capital stack that alternative lenders and individual investors must fill: Whereas in 2013 and 2014, senior debt might make up to 65 percent of the capital stack on new condo projects, the number is now routinely below 50 percent, sources said.
Another shift: a project’s sponsor once had close to carte blanche to determine sellout strategy, but capital partners are now asserting themselves.
“Financial backers are in the pitch meetings,” Town Residential CEO Andrew Heiberger said. “That’s a newer thing. Twenty years ago it used to just be you and the developer and now that’s evolved.” He recalled instances in which his firm had lost out on a project because another firm had won it through back channels.
“Dozens of times we were told we would get the project by the lead developers, only to learn later when it went through the ranks, another firm had gotten it through another contact–someone who brought more money or some other big investor,” Heiberger said.
Expect broker applications to Soho House to shoot up.
(Paydirt is a weekly column that riffs on the biggest NYC real estate news of the moment, providing analysis and historical context on the deals and players that make this town tick. Read more from Paydirt here.)